Aussie Gains Traction After Solid Chinese Data

The Australian dollar is forming a bottom as it attempts to gain traction despite the RBA’s signal that rates will remain low for the foreseeable future. Hedge funds have been lining up on the short side according to the most recent industry report. The yield differential has steadied, after moving in favor of the greenback for most of November and December. Solid data released in China helped the currency from down under gain traction.

Growth in China’s industrial production slowed to 10% in November month over month to 10.3% betting consensus estimates of 10.1%. The expansion in urban investment, an indicator of construction spending, eased, although the increase in retail sales accelerated. The data comes as Chinese officials start an annual central economic work conference, where they will set goals and policies for next year. Retail Sales accelerated to 13.7% year over year from 13.3%.

The Federal Reserve is schedule to meet next week which will likely be a non-event. Recent data points such as last week’s employment report will give the Fed something to think about, but they are unlikely to begin the tapering process until March of 2014.

The Australian dollar recaptured the 10-day moving average for the first time since early November. Support is seen near the recent lows at 0.9000. The next level of target resistance for the currency pair is seen near 0.94. Momentum on the currency pair is positive as the MACD (moving average convergence divergence) index generated a buy signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses above the 9-day moving average of the spread. The index moved from negative to positive territory confirming the buy signal. The RSI moved above 41 which is in the middle of the neutral range.

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